The German powerhouse bank explains why it uses both India and Russia for its offshoring needs. Russia's closer, for one thing

March 15, 2007 by Tony Hallett and Andy McCue

Deutsche Bank (DB) is one of the world's largest banks and has long used outsourcing and offshoring, at various sites around the world, but this week it took its relationship with Russian IT services player Luxoft to a new level.

So why would it work with this supplier, at sites in Russia, rather than have more work carried out in its established offshore locations - such as Bangalore, Mumbai or Manila - where it has captive operations or works with local companies?

For DB's COO of technology for global banking, Daniel Marovitz, whose teams mainly work out of European locations such as the City of London in the UK and Germany, Russia represents what many call a near-shore option.

Marovitz said: "There is a financial and psychological overhead of getting started in India."

On a simple level, India is further away - with implications for visits from the UK or communicating across time zones - and hotels there are, in many places, no longer cheap.

Meanwhile, said Marovitz, Moscow is three hours ahead of London and a three-hour flight away, plus "pricing is competitive" and - perhaps surprisingly - "English skills are pretty good".

But with a track record of successful partnering in India, why risk a new base? One reason was that several years ago DB wanted to start small with an important client relationship management system.

Marovitz said: "Culturally, it's a case of horses for courses. Most Indian firms are very process-focused and, if something can be 'template-ised', then that's very good. Things like Six Sigma and ISO are part of their DNA but that doesn't lend itself to innovation."

He added that for legacy skills around languages, such as Cobol or sophisticated HR packages such as PeopleSoft, India is "great" but for "innovation, testing new ground with new software, Russia is a pretty good place".

There are exceptions to these generalisations, of course. There is increasing amounts of innovation coming out of India.

But that's not meant as a criticism. DB's approach is clearly to have a range of options at its disposal. It is likely to still want great service out of Russia and innovation out of India but its tech bosses know the "horses for courses" mantra will apply to other countries too.

Michael Friedland, COO at Luxoft, believes the negative perception about doing business in Russia is now changing.

He said: "Most of the European countries are interested and open to Russia and they don't just look at us as a vendor for cheap labour."

Russia's IT services industry is currently growing at about 10 per cent per year and was worth $1bn in 2005. Analyst Gartner estimates the country will capture a five per cent share of the North American offshore services market by the end of this year.

But, despite Russia being in Gartner's top 10 list of near-shore outsourcing locations, the analyst still sounds a warning bell for companies thinking of heading there.

Ian Marriot, research VP at Gartner, told silicon.com the global perception of Russia as a difficult, and sometimes dangerous, place to do business is a potential barrier. "That's going to take years to break down," he said.

The bottom line is that offshoring and outsourcing aren't only about India - even if India has excelled at them.